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Are Premium Indicative of Future Returns? : Evidence from Exchange Traded Funds in India


Affiliations
1 Banarsidas Chandiwala Institute of Professional Studies, Dwarka, New Delhi, India
2 Banasthali Vidyapith, Rajasthan, India
3 International Management Institute, New Delhi, India
     

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The paper investigates whether Exchange Traded Funds (ETFs) trade away from their Net Asset Value (NAV), the relationship between traded volume, intraday volatility and whether the pricing deviation impacts future returns. It is observed that closing price deviates from NAV and resulting pricing inefficiency persists for three days on an average. Further, significant positive relationship is observed between return and contemporaneous premium and significant negative relationship with lagged premium, indicating a violation of efficient market hypothesis. Also, significant positive relationship is observed between volume and intraday volatility of ETFs and not index and insignificant negative relationship with lagged absolute premium.

Keywords

Exchange Traded Funds, Net Asset Value, Pricing Efficiency, Premium, Intraday Volatility.
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  • Are Premium Indicative of Future Returns? : Evidence from Exchange Traded Funds in India

Abstract Views: 567  |  PDF Views: 1

Authors

Nidhi Malhotra
Banarsidas Chandiwala Institute of Professional Studies, Dwarka, New Delhi, India
Harsh Purohit
Banasthali Vidyapith, Rajasthan, India
Deepak Tandon
International Management Institute, New Delhi, India

Abstract


The paper investigates whether Exchange Traded Funds (ETFs) trade away from their Net Asset Value (NAV), the relationship between traded volume, intraday volatility and whether the pricing deviation impacts future returns. It is observed that closing price deviates from NAV and resulting pricing inefficiency persists for three days on an average. Further, significant positive relationship is observed between return and contemporaneous premium and significant negative relationship with lagged premium, indicating a violation of efficient market hypothesis. Also, significant positive relationship is observed between volume and intraday volatility of ETFs and not index and insignificant negative relationship with lagged absolute premium.

Keywords


Exchange Traded Funds, Net Asset Value, Pricing Efficiency, Premium, Intraday Volatility.